Study; Employers Keep Up Fight for Key Talent

According to the Towers Perrin survey of 1,300 organizations in Asia, Europe, North America and Latin America, that represents a definite shift from the past three years, when operational excellence was considered the dominant strategy. Retaining and rewarding top talent remains steady at 75%.

Second only to earnings growth (54%), customer satisfaction (51%) was cited as the top business driver in how companies define success. Customer service is most often credited as the dominant business strategy (35%), with innovation leadership (22%) and cost leadership (5%) rounding out the list.

Generally, in trying to manage people costs without cutting staff, the study found that employers are focusing on three tactics:

• segmenting the workforce by high-performing individuals and the functions with the greatest direct impact on business results
• designing customized programs for these groups
• introducing more variable pay into the reward mix.

Companies in large part are by segmenting their workforce according to performance and reserving the most significant rewards for the roles or functions most critical to business success. Fifty-two percent of respondents globally identify this as the top tactic for managing people costs.

Another important tactic includes shifting a larger percentage of compensation costs from fixed to variable (i.e., incentive compensation). The overwhelming majority of respondents (82%) say the objective of their organizationwide variable pay plans is to improve overall business performance. Two-thirds say it is very important for nonmanagement employees to understand how their individual performance affects business results, yet more than a third of respondents (37%) say that employees in nonmanagement positions have either a low-level or no understanding at all.

Other forms of compensation with questionable results remain a fixture of many corporate reward strategies. Broad-based stock option plans are used as a form of compensation for nonexecutives at 37% of companies globally. Just over a third of respondents (36%) say they have made no changes to their stock award plans over the last three years.

While attracting and keeping top talent remains a priority among HR departments, the company purse strings still remain fairly tight when it comes to employee rewards. In four of the five regions surveyed – Canada, Europe, Asia and Latin America – managers identified the need to control costs without reducing staff as the top people cost issue. US respondents reported that health-care cost increases are the top people cost issue.

The 2003 Towers Perrin’s Rewards and Performance Challenges study was conducted among senior human resource and compensation professionals during 2003. The survey covered public, private and not-for-profit companies. More information is available at www.towersperrin.com .